Advocates back effort to tax private colleges’ endowments

HARTFORD — Efforts to make private colleges and universities pay their fair share renewed at the State Capitol. This time, a proposed bill would allow municipal governments to tax their endowment funds.

New Haven-based advocates and university students testified last Friday before the Committee on Planning and Development in support of the bill saying if Yale University — which has $41.4 billion in endowment value as of last June — pays an endowment tax, the city would be able to improve in many ways, especially with the public schools.

On the contrary, several private colleges and universities said they already contributed a lot to the local economy and that their funds are used to provide scholarships for students. Taxing itwould mean less resources for students and a serious impact to their operations, they said.

The bill, H.B. 5868, was introduced by state Rep. Brandon Chafee of Middletown, who wasn’t available to comment Monday, with Reps. Anne Hughes and DavidMichel as cosponsors. All ofwhom are Democrats.

It’s not the first time Connecticut lawmakers sought to impose tax on private higher education institutions. In 2016, two “tax Yale” bills eventually died. Previous attempts, dating back many decades, were mostly unsuccessful.

Under the federal Tax Cuts and Jobs Act of 2017, private colleges and universities with at least 500 tuition-paying students with endowment funds of more than $500,000 per student are already paying 1.4 percent tax of their investment income to the federal government.

Aden Gonzales, a Yale student, said Friday the university gets to choose how and where it wants to make a “piecemeal” donation to the city, which totals “a fraction of a fraction of what they owe and what they should be paying to the city of New Haven.”

Meanwhile, she said some in the city can’t afford basic housing and food, while there are severe staffing and teacher shortages within the school district.

If the city could taxYale, Gonzales said it “could invest millions and millions and millions of dollars in equity” by reducing class sizes and making sure local students have access to librarians, nurses, ESL instructors, social workers and GED classes, among others.

“Connecticut should be a shining example for the nation where every family has what they need to live a good life,” Gonzales said. “But instead, Connecticut is a state where hundreds of thousands ofworking people are struggling to raise families evenwhen private universities such as Yale are adding billions in their endowments and failing to pay to the city.”

In an opposition letter, Yale wrote the university contributes about $7 million a year to the state economy through direct and induced spending.

The university has the third largest endowment funds in the nation, after Harvard University and the University of Texas system, according to Inside Higher Ed.

Yale also makes an annual voluntary payment of $23 million to New Haven, which is the largest payment by any private college or university in the country. It participates in local scholarship programs forNewHaven students and hiring initiatives. The university also gives West Haven $607,965 and Orange $151,991.

Leslie Blatteau, president of New Haven Federation of Teachers, said Friday she recognizes the university voluntarily pays the city but it’s “only voluntary and it’s a small percentage of what they should be paying.”

“And really the money that Yale should be paying should be democratically allotted,” Blatteau said. “It should not be decided by decision makers at the university, the constituents of New Haven should have the right to determine where that tax revenue goes.”

Blatteau said when families were struggling during the COVID-19 pandemic, Yale reported an endowment return of 40.2 percent in the 2020-21 fiscal year — a number the university itself called “unusually high.” It sawa 0.8 percent rate the next year, however, the lowest since 2009.

If the university pays an endowment tax, Blatteau said the class size could be reduced in half, close to a thousand affordable housing units could be built, about 10,000 children could be put into critically needed child care and potholes throughout the city could be fixed.

Puya Gerami, a doctoral candidate at Yale and a director at Recovery for All CT, said the university’s endowment rise occurred simultaneously with a chronic underfunding of public programs in New Haven.

Besides issues in the public schools, Gerami said the money can be used for the library system, parks, mental health and reentry services and to reduce tax burden forworking families.

Jennifer Widness, president of Connecticut Conference of Independent Colleges, said it’s contradictory when the state tries to impose taxes on institutions that receive close to no state funding, yet still calls on them to address the workforce challenges.

Widness said the 15 member institutions across the state contribute about $16.5 billion to the state economy annually.

“These institutions serve as magnets attracting students and their families, alumni and tourists that all spend money locally yet use minimal municipal services,” Widness said. “They are large employers in their communities and collectively employ nearly 30,000 people statewide.”

Acknowledging financial challenges municipalities face, Widness said colleges and universities have stress of their own. She said most independent schools rely heavily on tuition and fees for revenue and have smaller endowment funds.

“Requiring nonprofit colleges and universities to pay additional taxes or fees to our host communitieswould divert scarce resources from education, financial aid and research and result in tuition increases,” Widness said.

Besides Yale, other institutions including University of New Haven, University of Hartford, Fairfield University and Sacred Heart University submitted a letter to the committee in opposition of the bill.

Tax-exempt colleges and universities in Connecticut pay taxes for their commercial buildings to their host municipalities for commercial buildings. Residential properties certain universities own are a part of their respective town’s grand list, under a law passed in 2015.

State’ s payment in lieu of taxes program also reimburses municipalities for real property owned by private, nonprofit colleges and universities.